Online retail is where the jobs are

With record numbers of us shopping online, the retail sector may begin to contract and the jobs move to other areas.

The threat of the internet to traditional retailers was brought home over Christmas by a 50 per cent rise in online sales on the year before. In January, HMV's chief executive, Alan Giles, announced his retirement after a 5.5 per cent drop in sales over the Christmas period on the year before, which the company blamed on competition from online music sales.

Retail is the UK's biggest employer. For now, jobs are not threatened. But experts predict that this could change with jobs going to the transport sector that takes care of distribution.

It's easy to see why more shoppers are going online. "You'd be crazy not to," says the chief executive of the Interactive Media in Retail Group (IMRG), James Roper. "There's a bigger choice and you spend less money." Consumers seem to agree. Twenty-four million of us spent £19.2bn online in 2005, according to a survey of more than 80 retailers by the IMRG, which estimates that online spending will continue to rise over 2006 to £26.1bn.

More people are taking advantage of online offers now, he says. "Over the past year, you've started to see new investment coming in after a four-year drought," he says. "And customers who've come online in the past five years are seeing better things being offered." Nearly eight million people have signed up to broadband in the past year.

"Retail is fundamentally changing," says Roper. "Every business needs to re-evaluate its position, and that's not easy: the very good sites now have been at it for years." But it's not all bad news for the high street. Selling through the internet is around 20 per cent cheaper than through stores, estimates Roper. The trouble is, it is also more competitive. "The online market is more consumer powered," he says. "If the consumer doesn't like you, they won't shop with you - the competition is just a click away."

Majestic wines thinks it has found a way to keep customers loyal. "What we've aimed to do is get the best bits of shopping instore and online and bring them together, to give customers the flexibility of the web and the high level of customer services traditionally delivered by Majestic," says Jeremy Palmer, the company's commercial director.

Majestic has not used savings from going online to cut prices. Instead, all orders, except the most remote, are checked by phone and delivered for free by staff. "The majority of our competitors use couriers, so you don't have contact with people who know about wine," says Palmer. "We wanted to keep the staff and professionalism of the store in our online business." A more personal service also guards against delivery cock-ups, the bane of web shopping.

It's a system that seems to be working. Since 2000, the online division has been growing consistently, at 40 per cent annually. This year, Majestic is up for a Retail Week award for online company of the year, although web sales still only represent 5 to 6 per cent of the chain's total business.

The fact that online commerce still only represents a small percentage of most sales for traditional companies has meant that some have overlooked it. HMV was one of the first companies to launch a website, in 1999, but it has not brought sales. However, online prices now match those of its competitors, Amazon and Play, and last year HMV moved its distribution centre to Guernsey. Now, like its rivals, it can distribute its online sales more cheaply and does not have to pay VAT.

But most of the interesting changes that HMV is making will only become apparent after it launches its new website in March. While many companies have streamlined their websites in the past five years, HMV is looking to expand its online services. "Online shoppers told us they missed the vibrancy, the ease of discovering new music, and the expertise of the staff," says Gideon Lask, the company's head of internet. "There are lots of projects coming up. There'll be a far better integration of stores and the internet." One plan is to get instore staff to make recommendations to online shoppers based on their purchases.

January was a long month for HMV. Despite the drop in sales before Christmas, the resignation of its chief executive of eight years, and a worrying profit warning, at the end of the month HMV's prices leapt with a likely takeover in the offing. The web has bounced back, and there is still time for retailers to do so, too.